Canadian Crude Exports by Rail Drop in Latest Quarter

Lower oil prices have made shipments by rail less attractive to some Canadian crude producers

CALGARY—Canada’s national energy regulator said Thursday exports of crude oil by rail dropped in the latest quarter, a sign that lower oil prices have made shipments by rail less attractive to some Canadian crude producers.

Crude-by-rail exports declined 5% to 173,342 barrels a day in the fourth quarter, down from 182,396 barrels a day in the previous three month period but still above the 148,929 barrels a day exported in the last quarter of 2013, according to National Energy Board data.

A slide in oil prices to six-year lows has crimped oil producers’ profit margins and made it uneconomical for some to ship by rail. Last month, Suncor Energy Inc. and Cenovus Energy Inc., two of Canada’s largest oil sands producers, both said they have stopped shipments of crude-by-rail to the U.S. Gulf Coast.

The U.S. imports more oil from Canada than from any other country. Despite an overall drop in U.S. imports of foreign oil, Canadian crude exports to the U.S. have surged in recent years, hitting a record 3.3 million barrels a day in December, according to the U.S. Energy Information Administration.

Most of that Canadian crude is shipped via pipeline, which is cheaper than rail. But crude-by-rail shipments from Western Canada have grown sharply in recent years due to rapidly rising production and a lack of pipeline infrastructure. The amount of crude moving by rail in Canada has quadrupled since 2012, and is forecast to more than triple, to 700,000 barrels a day, between now and 2016.

But the halving of crude oil prices to $50 from their highs in mid-2014 has eroded profit margins to the point that rail premiums may no longer make sense. The industry also faces the added cost burden of a compensation fund to cover the potential costs of oil-train derailments. Canada’s government last month said the new fund would be financed with a levy on crude shippers amounting to 1.65 Canadian dollars ($1.32) per metric ton of crude oil carried.

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